Report of the Assistant Director Resources/Treasurer

The Panel considered the Report of the Assistant Director Resources/Treasurer informing them of the PSAA (Public Sector Audit Appointments) consultation on audit fee variations and to seek its views on the questions asked by the PSAA.  The PSAA was consulting on proposed new arrangements for determining fee variations for local audits of opted-in bodies from audits of 2020/21 accounts onwards.  The current fee variations process required the auditor to discuss all proposed variations with the audited body before submitting them to PSAA for determination.  Feedback from both auditors and audited bodies frequently referred to the practical challenges and limited value of local discussions about proposed variations which relate to those factors which affect most or all audited bodies.  Many contributors had asked PSAA to take a national lead on additional fees, where possible removing the need for local negotiations.

PSAA was proposing a new approach, based on two types of variation:

·        national variations, required for changes that relate to the conduct of all or most audits, such as changes to the auditing and accounting codes, standards and regulatory requirements, where a standard cost can be reasonably estimated; and

·        local variations, required for issues that relate to local factors arising from the conduct of a particular audit, such as the additional audit work required if accounts reflect complex transactions that are not built into the scale fee, or where working papers are poorly prepared, or for work relating to an auditor’s statutory responsibilities such as objections, statutory recommendations or public interest reports.

The Panel was asked to give its thoughts on the consultation questions and the proposals in order that a response could be submitted.  The ADR/T reminded Members of the context of this consultation, particularly in relation to the Redmond Review which the Panel had considered at its meeting on 12 November 2020. By and large, Officers were supportive of the proposal to base the new approach on the national local variations detailed above. 

There were some concerns about the suggestion to increase Day rates by 25%, it was not clear where this percentage had come from, it was recognised that there were increasing costs, but there was a desire for PSAA to be clear on the basis of 25% and why they were reasonable.

There were two issues presented to the Panel, these were that the PSAA ought to work with the regulator to reduce the impact of regulations on costs, there was a need to consider how these would impact on Public Sector organisations, the impact would not be the same as it would in the Private Sector.  The second issue was targeted at central Government, the changes felt like a new burden and therefore, the costs should be borne by them. 

The CFO added that the accessibility of audit and accounts reports needed to be considered, in order to allow proper public scrutiny.  The current format could be impenetrable even to professionals.  The ADR/T confirmed that this was an issue raised in the Redmond Review but rested primarily with CIPFA/LASAAC who published the Code of Practice for Local Authority Accounts.  The Panel agreed the purpose of these reports should be about reporting and explaining to the public what and why the organisation had spent what it had and that the Auditors were happy, but it was decided that this was not appropriate for this consultation.

A lengthy discussion followed during which Members agreed that the position was complex, the distinction between the public and private sector was becoming increasingly blurred, particularly with the increased investment by Local Authorities in property.  Also more Local Authorities were setting up companies, particularly those providing housing and energy.  It was deemed important that the PSAA addressed this.  Fire Authorities by contrast have very limited exposure to these type of commercial activities and therefore should be approached differently.  It was hoped by the Panel that there would be some future consideration by Government of how the role of Local Authorities was changing.  In principle it was understood that charges should increase, but there was concern about the proposed flat rate approach.  There was some additional concern about the national standards and whether this may remove some local control, it was felt that the minimum possible should be dealt with by national variations.  The Panel agreed that simplification was essential in order to increase public understanding, engagement and accountability. 

It was further discussed that there should be greater definition made by PSAA of the national v. local variations.  There was also a request that PSAA give consideration to the potential need to bring in specialists and therefore there needed to be the ability to reflect this in audit rates.

It was agreed that the ADR/T would construct a draft response and, after consultation with the Panel chairman it would be shared with all members prior to submission before the deadline.

RESOLVED – That the Panel agreed to:

i.                 consider the consultation document and its proposals;

ii.                directed officers as to its preferred response; and

iii.               that the Panel delegated the power to finalise the response to the PSAA Consultation to the Assistant Director Resources/Treasurer, after consultation with the Chairman.